Property: Buy or Rent

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Which is Best, Buying or Renting a Property?.

Looking for somewhere to live? Wondering if you should Buy or Rent?


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It isn’t a simple answer, until you decide what you are really wanting, now and in the future.

If your plan is to move again in a year or two, then Renting may well be the best option. But if you are thinking long term in that one place, then seriously consider buying, if you have sufficient deposit.

Many people do say that Renting is cheaper, and can show figures to prove it.  But is it really true?

For example:

BUYING: A house for $500,000, with a mortgage of $400,000, will cost you $2,121 per month for 25 years, at an interest rate of 4%.  On top of that you may have Council/property tax of $2,000 per year (this can vary based on location).  Total cost for the year: $27,452 (excluding buying costs)


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RENTING: That house might current rent for $500 per week, or $26,000. (no buying costs involved).

Renting is cheaper, and even more so, when you consider that the buyer must also pay initial purchase costs, stamp duty etc. For where I live, that would be an extra $10,500.

If I had to borrow ALL the money to pay for that $500,000 house, my monthly costs would be $2,715 or $34,580 for the year.  That is $665 per week.  Plus another $2,000 per year in local taxes.  That $2,000 will increase each year by inflation, let’s assume 4%.

So, buying a $500,000 house would cost me $898,000 over 25 years, the term of the mortgage. (If I borrowed 105% to include buying costs). The amount paid in the last year would only be a little higher than the first year, at $725 per week, compared to $665 in the first year.

How much would renting cost, over that same 25 years, at the same annual rise of 4%.

That figure works out at $1,080,000 over the 25 years.  The amount of rent paid in the last year would be a lot higher than the first year, at $1,280 per week, compared to $500 per week in year one.

But, what if you live past that 25 year term? What if you are there for 50 years?

Buying costs with Council/property tax increasing at 4% per year over 50 years would cost a total of $1,120,000.

Renting with rent increasing at 4% per year over 50 years would cost a total of $3,970,000.

Let’s reduce that to 40 years:

Cost Over 40 years with 4% inflation

  • Buying Cost over 40 years: $1,004,000
  • Renting Cost over 40 years: $2,470,000

How would those figures change if inflation was only 2%

Cost Over 40 years with 2% inflation

  • Buying Cost over 40 years: $984,000
  • Renting Cost over 40 years: $1,570,000

This shows a definite advantage, long term, with buying a property.

But.. have we forgotten something?

What is the situation after the 40 years is up?

The renter moves into a retirement home?  Probably still has to pay rent there too..

What does the home owner do?  They stopped paying a mortgage after 25 years.

Assuming their property has only increased at the same rate as inflation, ie: 4%, that property is now worth $2,300,000  or only $1,082,000 if only a 2% rise per year.

I looked at these figure in another way, as the renter will pay less than the buyer in the first 15 or 16 years.

In 15 years, with inflation at an average of 2%, the Buyer will have paid out $523,000. The renter however will have only paid $450,000.  The renter is better off by $73,000 in cash.

However, the buyer can sell that property for $660,000, and pay off the remaining mortgage, and still have about $400,000 left in cash.

Long term, it seems that Buying a House is much cheaper.


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